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Monday, July 30, 2007, 03:45 pm PT (06:45 pm ET)

Analyst: iPhone is Harry Potter "squib" of cellphones

Apple and AT&T may have produced marketplace magic in the past, but a new report claims that the firms' iPhone child may lack the gifts of its parents.

Timing the introduction of his report just after the release of the final Harry Potter book, Capital Group senior VP Ashok Kumar told investors that the iPhone had the pedigree of the iPod's success and the backbone of AT&T's service but that, like the unfortunate offspring in J.K. Rowling's stories, the combination fails to live up to the expectations set by its ancestors.

"In the Harry Potter books, a squib is the offspring of a witch and wizard that lacks the ability to produce magic," Kumar explained. "In the technology world, the iPhone is a product from Apple teamed with the wireless network of AT&T that lacks the ability to produce magical business growth."

Unlike the more mysterious origins of the fictional characters, however, the lackluster results for the iPhone are said to be traceable to mistakes made in the iPhone's features and pricing. The device is aimed squarely at the iPod's general public audience but is priced in the same range as personal digital assistants and smartphones. Either flaw could be a potentially fatal blow to the handset, Kumar said.

While businesses already have their own self-evident questions about the value of integrating a potentially less productive (and more distracting) smartphone into their networks when RIM's BlackBerry or Palm's Treo were already known to work well, the real issue is the expense of the iPhone for those used to both the the iPod and everyday cellphones, according to the report. The iPod has rarely been priced at $500 and never had a two-year contract associated with its use — an especially serious problem when customers can get some of the features in much less expensive devices.

"The market is already saturated with popular [phones] that are virtually free to consumers," the expert wrote. "The perceived zero cost of a cellphone like the Motorola RAZR is a serious impediment... the $500 price difference between and iPhone and any number of richly featured [phones] is a lot for a large number of individuals and families to overcome."

Apple would also have to confront the backwash from the corporate world's traditional resistance to anything Mac in the workplace, as many IT managers might resist certifying the iPhone for their networks even if support falls into place. Both the Cupertino-based firm and its cellphone would have to overcome old stereotypes before they could gain acceptance, Kumar said.

In contrast to the squibs of Hogwarts, Apple is not necessarily condemned to mediocrity, according to the Capital Group. But the iPhone would not be guaranteed a better outcome unless its parent was willing to change its strategy, which could become a costly mistake in the long term.

"The old iPod magic doesn't translate here — the iPhone is going to be much more difficult," Kumar noted.